By RACHEL FEINTZEIG
Hostess Brands Inc. is seeking court permission to reject the 296 collective-bargaining agreements that cover the majority of its 19,000 employees, saying it simply can’t survive in the marketplace without significant changes to its labor obligations.
The maker of Twinkies and Wonder Bread said Wednesday it was “fighting for its survival” during its second trip through bankruptcy despite enacting cost-cutting measures and staging a reorganization in Chapter 11 just a few years ago. The only way forward now, the company said, is to rid itself of labor deals with 141 local affiliates of the Teamsters union and 35 local affiliates of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. The maker of Twinkies and Wonder Bread said Wednesday it was “fighting for its survival” during its second trip through bankruptcy despite enacting cost-cutting measures and staging a reorganization in Chapter 11 just a few years ago. The only way forward now, the company said, is to rid itself of labor deals with 141 local affiliates of the Teamsters union and 35 local affiliates of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union.
“Hostess simply cannot emerge as a viable competitor unless they are relieved of a number of significant financial commitments and arcane work rules imposed by their collective bargaining agreements,” the company said in papers filed with the U.S. Bankruptcy Court in White Plains, N.Y.
The company is currently losing hundreds of millions of dollars a year, it said, blaming an “inflated cost structure” for its financial woes—specifically obligations under collective-bargaining deals governing 15,000 active union employees. It said it has made proposals to its unions “seeking labor modifications that are essential to a successful restructuring.” But while negotiations are under way, a deal still hasn’t been struck.
Under separate proposals Hostess handed to the Teamsters and the bakers’ union the day it sought bankruptcy, Hostess would increase its projected pretax earnings by $239.3 million annually by fiscal 2015, the company said. The savings would result from Hostess no longer participating in pension plans for the unions, instead contributing to a few different benefit and contribution plans—a move that should save it $74.1 million annually by 2015. The proposal would also cut back on the union employees’ health and welfare plans and wages by implementing a salary freeze and would tweak work rules that Hostess said “have created widespread inefficiencies in the debtors’ operations.”
In addition, the company is gearing up to make other changes to its business that don’t touch on labor. These initiatives include upgrading its vehicle fleet, closing five bakeries that “operate at low baking capacity,” and outsourcing the production of certain Hostess baked goods—including seasonal items like hamburger buns—to third-party bakeries. But those measures would only increase the company’s projected annual pre-tax earnings by $76 million by 2016, it said.
“The non-labor initiatives alone will not allow the debtors to become a viable competitor in the market,” Hostess said.
At a hearing Thursday, various parties, including the judge assigned to the case, said they hadn’t yet had a chance to fully review the motion to reject the labor agreements, a 78-page document that Hostess had been expected to file if a deal with the Teamsters and the bakers’ union wasn’t reached by Jan. 24.
The other unions that represent the remainder of Hostess’s unionized employees have through late March to reach a deal with Hostess before the company files a similar motion regarding their collective-bargaining agreements. They get the extra time because Hostess didn’t focus on talking to these unions before the bankruptcy as heavily as it did the two main unions.
A trial over whether Hostess can reject its collective-bargaining agreements has already been scheduled for early March, but with Hostess’s survival and jobs on the line, all sides have incentive to quickly strike a deal before the matter is placed in a judge’s hands.
In a statement released Thursday in response to Hostess’s motion, Dennis Raymond, the chairman of the Teamsters Bakery and Laundry Conference, said the group is still “prepared to negotiate in good faith to reach a consensual agreement.” But he warned that Hostess wouldn’t be able to “bully its way to unnecessary changes.”
“Any agreement will be conditioned upon sacrifices by all stakeholders and an overall restructuring to make sure Hostess management doesn’t lead the company into this situation a third time,” he said.
Hostess filed for Chapter 11 protection on Jan. 11, and its labor issues have been in the spotlight during the first weeks of the company’s proceedings. At Hostess’s debut in bankruptcy court earlier this month, lead bankruptcy attorney Corinne Ball underscored the company’s desire to maintain its union ties.
“Hostess is a union company that intends to build its future with the unions,” said Ms. Ball, who’s with Jones D